Most small and medium business owners have business expansion as the foremost objective on their list. However, they fail to identify and implement the underlying requirements. One of the most crucial and vastly neglected business operations is bookkeeping. If you are unable to manage it efficiently, your business will be in jeopardy.
The reason why bookkeeping is not considered significant is that business owners think that accounting is a fairly easy process. However, you need to know that improper or poor bookkeeping can degrade the financial health of your business drastically. It can even lead to insolvency. Another aspect of bookkeeping that repels business owners is the fact that it is tedious and extremely time-consuming. This is also the primary reason why most people make mistakes that prove to be detrimental in the future.
We have prepared a list of the 5 most common bookkeeping mistakes that you need to avoid at all costs. Please keep reading to know more.
Doing all the accounting work by yourself
As a business owner, you have multiple roles that you need to perform. Money management is certainly the most crucial aspect of a business. However, it does not mean that you need to be the only one managing it. In fact, we advise you to leave the bookkeeping management to a professional in case you do not have a firm background in business tax law and accounting. Assigning this task to a professional will not only ensure proper bookkeeping and eliminate errors but also spare the time necessary for you to work on your business.
Although doing the work by yourself and not outsourcing might seem pocket friendly at first, it tends to downgrade the financial health of your business as it keeps growing. Moreover, professional accountants not only help to track and evaluate receipts but also provide valuable advice and strategies on record and account management. Besides this, they also offer important advice on tax filing, which is otherwise time-consuming, hectic, and prone to errors.
Forgetting to record small purchases
Sometimes, even the most experienced business owners forget to record and track their business transactions. The absence of a meal ticket might not occur as a huge issue at first. However, it can lead to serious issues in the future. Moreover, it might pose a legal issue if you have claimed expenses but do not possess any document or record to prove them. Thus, you need to record every single purchase for avoiding trouble and enabling smooth functioning of your business.
Moreover, dealing with bigger transactions becomes easy if you record and track small purchases. Thus, accounting and management will become simpler as your company grows and the transactions increase.
Not carrying out the statement and book reconciliation
One of the major aspects of bookkeeping that comes after recording is the reconciliation of all the transactions in your business books with your bank statement. This is an important responsibility that needs to be performed at least once every month, the failure of which might lead to serious issues.
Account reconciliation is a simple task where you need to compare your recorded business transactions with the bank statement to identify and solve any disparity. If you find any error, please contact your bank as soon as possible to resolve it. Performing this task every month allows you to eliminate all bookkeeping errors before they transform into some significant financial setback.
Combining business and personal accounts
It is important to separate business expenses from your personal expenses. This is a crucial step irrespective of the size of your organization. Thus, opening a professional bank account is one of the first steps that should be taken by a business owner.
After this, you need to consult an accountant to come up with an effective earnings management strategy. This is essential to segregate business and personal expenses. The earnings management strategy depends on many aspects like determining the profit amount that needs to be invested into your business, cash flow requirements, payment timings for big business expenditures, long-term financial goals, and so on.
Not preparing project budgetary plans
Do you start a project without allocating a definite budget? If so, you are committing a grave mistake. If you initiate a project without figuring out its approximate overall cost, there are high chances that you will end up spending more than intended.
Moreover, if you do not make a budgetary plan, managing the expenditure becomes difficult. Thus, it might lead to spending your company’s limited funds on a project that would not provide the anticipated return on investment. This is why planning and allocating budgets to projects are important.
Undoubtedly, you will come across at least one of these costly bookkeeping mistakes listed above. However, all of these mistakes can be easily avoided by practicing thorough and effective bookkeeping strategies designed to ensure the success of businesses. You can hire a professional accountant or contribute sufficient time and learn about accounting so that you avoid these mistakes and preserve your organization’s financial health.